WCI's liquidity in question after shares dive

JohnSpence

BOSTON (MarketWatch) -- Residential builder WCI Communities Inc. may be in a struggle for survival with its lenders after the stock lost more than half its value on Wednesday, analysts said.

"Our recent conversations with lenders indicate that credit availability continues to tighten for home builders, especially highly leveraged builders such as WCI," wrote Banc of America Securities analysts in a note to clients Thursday. They cut their price target on shares of WCI
WCI, -2.49%
to $1.50 from $3, citing their increased liquidity concerns.

Shares of WCI were up more than 5% to $1.58 in afternoon trading Thursday, recovering somewhat one day after the stock plunged 53%. Standard & Poor's reiterated its junk rating on the company Wednesday, highlighting "acute liquidity challenges." If WCI can't negotiate longer-term financial flexibility with its lenders and secured creditors foreclose on collateral, then unsecured debt could be accelerated, the ratings agency warned.

Analysts fear that WCI, which has been hit hard by the condominium crash in Florida, may be forced into bankruptcy if it isn't able to renegotiate terms and modify covenants with its lenders. Other home builders socked by the housing downturn and the credit-market turmoil have been required to obtain waivers from creditors.

Morningstar Inc. analyst Eric Landry noted that WCI and its lenders have had to extend a deadline to amend the interest coverage covenant twice in the past several weeks.

"We wouldn't be surprised to see a default-like event on or around the latest deadline, Jan. 16, in which case the small amount of equity that remains could be further impaired," the analyst wrote in a research note Thursday.

"On the other hand, we wouldn't be surprised to see another extension, or something else that staves off bankruptcy for the foreseeable future," the analyst said, adding that it's difficult to value the company's equity with the outlook so uncertain.

WCI's balance sheet "reveals several possible scenarios in which a liquidation, if done in an orderly fashion (a big if), could yield an equity value of more than zero once creditors are paid off," Landry wrote. "How much is anybody's guess."

WCI's stock has been in free fall as the company has struggled against surging defaults in its high-rise condo-building business. The builder has restructured in an effort to shore up its capital base and has cut hundreds of workers.

In March, a group led by billionaire investor Carl Icahn bid $22 a share for WCI, an offer that was rejected. Then, in early September, WCI's board elected Icahn as chairman.

Separately, shareholder Hotchkis and Wiley Capital Management has cut its passive stake in WCI to 1.6% from 6.6%, according to media reports Thursday.

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